The Income Tax Appellate Tribunal (ITAT) held that Section 194C of the Income Tax Act, 1961 relating to Tax Deducted at Source (TDS) is not applicable to reimbursement of vehicle expenses.

A vehicle was provided by the assessee to the concerned parties and assessee was to bear the vehicle expenses actually incurred by the cab owners which will be reimbursed by the parties concerned, reimbursement of actual expenses incurred by the assessee could not be treated as payment subject to TDS under section 194C.The Assessing Officer (AO) noticed from the profit and loss account of the assessee that assessee had debited a sum for vehicle hire charges paid and a certain sum for petrol and diesel expenses paid. The assessee was asked to produce details of TDS on expenses, however, the assessee failed to do so. Subsequently, the assessee submitted PAN card from cab drivers and owners for whom hire charges were paid and that the cab drivers and owners were all regular income-tax payers and hence as per section 194C no TDS was made where PAN was provided.The tribunal bench consisting of a Judicial Member Beena Pillai and an Accountant Member, Chandra Poojari held, “if bills for such expenses incurred by the said cab owners were separately raised by them on the assessee in addition to bills for hire charges and since the number of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by section 194C of the Act requiring the assessee to deduct tax at source therefrom, where bills were raised separately by the cab owners for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, we are of the view that the provisions of section 194C of the Act were not applicable to the reimbursement of actual expenses and the assessee was not liable to deduct tax at source from such reimbursement.”